Implemented in May 2016, Insolvency and Bankruptcy Code resolved several debt ridden cases in India. However, Insolvency and Bankruptcy Code settlements lead to almost 7 lakh crore losses and over a million job losses.
Liquidations under Insolvency and Bankruptcy Code
The latest reports released by Insolvency & Bankruptcy Board of India (IBBI) revealed that around one-fourth of the cases admitted under IBC went under liquidation. However, it managed to fetch liquidation value of as low as 6.67%. Navrang Saini, Whole Time Member of IBBI stated that there was a registration of 3,455 cases under IBC till January 31. Out of these, while there was a withdrawal of 141 cases, 265 were settled.
Further, the board approved 198 cases and 826 cases went into liquidation, 24% of the total. Besides, the IBBI newsletter noted that 561 out of 774 (liquidation) cases were with BIFR or defunct. The report also reveals that out of Rs 8.19 lakh crore claimed, creditors received just Rs 1.73 lakh crore.
Success of the Code
The insolvency and bakruptcy code managed to successfully resolute 190 companies till December 2019, owing Rs 3.8 lakh crore to creditors. However, these companies had only Rs 0.77 lakh crore worth realizable assets. Because the Insolvency and Bankruptcy code maximizes the value of assets on the ground, creditors were able to recover 207% of the realizable value on account of insolvency and bakruptcy code.
Job Losses Due to Liquidated Cases
As per reports, as loan size improves, the number of jobs may come down to 6.5 workers from 16.5 workers per one crore. This is because each company worth Rs 200 crore employs around 3500 employees on an average. The calculations estimate a loss of a total of 1.1 million job opportunities due to liquidation case. MS Sahoo, the head of the insolvency regulator IBBI stated that the results are based on misconstruction that the companies undergoing liquidation have assets. Rather, he said that the IBC process has saved jobs through the rescue of 80% of the distressed assets.
In all, IBS has improved India’s ranking in ease of doing business along with bringing NPAs down. However, it has resulted in the loss of a huge amount even after the recent amendment to the code.